Norwood Financial Corp. (NASDAQ:NWFL) will increase its dividend from last year's comparable payment on the 2nd of February to $0.32. This will take the annual payment to 4.3% of the stock price, which is above what most companies in the industry pay.

Norwood Financial's Earnings Will Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Norwood Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is an alarming sign that could mean that Norwood Financial's dividend at its current rate may no longer be sustainable for longer.

The next 3 years are set to see EPS grow by 151.1%. For the same time horizon, analysts estimate that the future payout ratio could be 36% which would be quite comfortable going to take the dividend forward.

Norwood Financial Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from $0.827 total annually to $1.28. This works out to be a compound annual growth rate (CAGR) of approximately 4.5% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Earnings per share has been sinking by 16% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Norwood Financial's Dividend

Overall, we always like to see the dividend being raised, but we don't think Norwood Financial will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Norwood Financial is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.